Embattled Nigerian currency, the naira, has made a surprising comeback in the parallel market, gaining more than 22% to bounce back from its disastrous plunge in the past weeks.
The naira traded at about N680 per dollar on Friday, indicating over 25% gain compared to the N900 per dollar it recorded in the past weeks, though it moved up to N711 per dollar on Saturday, according to Naira Rates, an online forex rates aggregator.
So many factors have been attributed to the naira’s appreciation in the black market, particularly the move by the Central Bank of Nigeria (CBN) to redesign N200, N500 and N1,000 notes. The move is believed to have triggered mixed reactions in the market as those who stashed cash away hurry to convert them to foreign currencies or put them back in the banks before the CBN deadline.
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The central bank has given until Jan 31, after the release of the redesigned naira notes – which will take place Dec 1, for the old naira notes to be returned to the banks’ vaults.
The CBN said N2.73 trillion out of the N3.23 trillion currency in circulation was outside the vaults of commercial banks across the country. The belief is that forcing the hoarders to return the cash to the banks will minimize the amount of money in circulation, thereby mitigating inflation.
Nigeria’s anti-graft agency, the Economic and Financial Crimes Commission (EFCC), launched a large-scale operation to halt attempts by the naira hoarders, who were alleged to be cutting deals with Bureau De Change operators, from converting their stashed cash to foreign currencies.
However, while many fingers point to these factors as the reason behind the recent upsurge of the naira, financial experts say events in the U.S. have more bearing. Dollar fell significantly on Friday in what has been described as its biggest drop in 14 years. The drop follows the 7.7% year-on-year rise of consumer inflation, which beats the projected 8% by analysts, marking the slowest rate since January, according to data published on Thursday.
Reports indicate that the dollar staged its biggest drop since late 2015 on Thursday as Treasury yields plunged. The dollar index was down nearly 1.7%, and has lost more than 3% in the last two days – indicating the biggest two-day decline since March 2009, per CNBC.
This triggered the jump of other currencies, particularly the yen, which has dropped 22% against the dollar this year, and the pound. The yen gained about 1.6% against the dollar, while yuan rose by as much as 1.3% to hit its highest in over a month against the dollar. The pound rallied 1.1% against the dollar to $1.1839, while the euro moved up to 1.5% to $1.0356, its highest since August.
But the naira gained far more than other currencies due to improved dollar liquidity in Nigeria’s FX market. The improved supply has been attributed to market speculation bordering on unconfirmed reports that the U.S. is ramping up dollar notes printed before 2021, to mitigate the amount of dollars in circulation – a step similar to the one taken by the Nigerian government.
BDC operators said there has been an uptick in dollar supply and low demand in the parallel market as dollar hoarders hurry to sell off their stockpile to avoid getting caught in the rumored U.S. plan.